The mutual fund industry in India has matured a lot in the last 20 years or so. Regulatory reforms have made mutual fund industry much more transparent (in terms of disclosure norms) and efficient than how it was couple of decades back. Along with transparency and efficiency, the industry from time to time has introduced a number of innovations to make mutual funds more investor friendly and accessible to large sections of the Indian population.
One of the most impact full innovations in the mutual fund industry from the investor perspective was the introduction of Systematic Investment Plans (SIPs) or SIP plans in the late nineties. SIP plans made mutual funds affordable to large segments of retail investors, especially salaried investors, who could start investing in mutual funds from their regular monthly savings. SIP is not really an original innovation in India; SIPs existed for many years in matured markets like the US before they were introduced in India. But over the years, SIP plans have become very popular in India and are now the preferred investment mode for majority of the investors. As per AMFI, there are more than 2 Crore SIP accounts and the monthly inflow through SIP in February 2018 stood at over Rs 6,400 Crores, up 59% on a year or year basis.
As mentioned a number of times in our blog, SIP plans can be the best investing methods for retail investors. SIPs enables success in financial planning by helping investors achieve their financial goals through a disciplined investment approach. The Indian stock market has historically been more volatile, relative to more developed markets. High volatility, both on the upside and downside, makes market entry difficult for the average retail investor. SIP makes market timing irrelevant and helps investors get better returns through rupee cost averaging.
SIP plans enables investors to start their financial planning journey early in their careers, even when their incomes are relatively low, by starting with a small monthly investment. Most AMCs allow investors to start SIP plans with minimum instalment of Rs 500. Reliance Mutual Fund allows investors to start SIPs with minimum instalment of just Rs 100 – such low minimum SIP amount enables even lower income households to invest in mutual funds for their long term goals. While mutual fund products, per se, being highly regulated, offer little scope of innovation, fund houses have introduced a number of service related innovations like Systematic Transfer Plans, Systematic Withdrawal Plans, Instant Redemptions, Online investments and redemptions etc, which offers a wider array of investment planning choices and broadened the appeal of mutual funds.
Reliance Mutual Fund is a pioneer in the mutual fund industry, as far as is innovation is concerned. Some of the key innovations of the AMC are, ATM card linked to Mutual Funds(providing instant access to investments), first equity-oriented retirement scheme with tax benefits u/s 80C, First Gold Savings Fund, enabling investors without demat accounts also to invest into gold etc.
Himanshu Vyapak, Deputy CEO of Reliance AMC, in his interview with Advisorkhoj told us that, “We (Reliance Mutual Fund) have been very particular that innovations should be at the core of our activities. We had set-up formal and informal medium to seek ideas with the objective of fostering innovation. We encourage our people to think differently, and give leeway to experimenting without having the fear of failure. The result is that we keep coming out with path-breaking innovations”.
Due to lack of awareness and limited reach of the mutual fund industry in terms of the last mile connectivity to the investors across numerous cities and towns in the country, many investors are unaware of such innovations, which can be useful for their specific needs. It is the responsibility of mutual fund distributors who have the last mile connectivity to the clients and media organizations like us, to increase awareness about mutual funds and the various features offered, so that investors can benefit from them. Since SIPs are slowly becoming the preferred choice for many retail investors across India, we will discuss some very innovative SIP plan features offered by Reliance Mutual Fund.
In SIP a fixed amount as specified by the investor, is invested at a regular frequency, usually monthly, in a mutual fund scheme chosen by the investor through Electronic Clearing Service (ECS) from the investor’s savings bank account. A one-time bank mandate will suffice to ensure ECS for SIP every month (or any other frequency specified by the investor) for the tenure of the SIP. If there is not sufficient balance in the investor’s bank account then the SIP instalment will not be processed. The SIP will restart with the next instalment (next month), if there is sufficient balance in the investors bank account for the SIP ECS. However, if the SIP (ECS) does not get processed for three consecutive months due to insufficient funds, then the fund house will cancel the SIP and not accept further instalments. In order to initiate the SIP again, the investor will have to do a fresh registration.
There can be many reasons why you may not have sufficient balance in your bank account on your SIP date – big unavoidable expenses in a particular month or for a few months, loan repayments or pre-payments, cash crunch caused by temporary loss of income or reduction in income etc are among other factors. If you can foresee a cash crunch, you can opt for the SIP Pause facility offered by Reliance Mutual Fund, for all the eligible open ended schemes of Reliance Mutual Fund. Under this facility, investors will have an option to discontinue their SIP temporarily for specific number of instalments. SIP can be discontinued for minimum 1 instalment and up to a maximum of 6 instalments. SIP would restart upon completion of the Pause period specified by the investor, without new registration.
However, there are certain conditions for availing of the SIP Pause facility. Pause facility shall be available only for SIP plans registered under monthly frequency with a SIP instalment amount of Rs 1,000 and above. Investor can opt for pause facility only from 7th instalment onwards. Investor can opt for pause facility, only twice during the tenure of a particular SIP. The minimum gap between the pause request and next SIP instalment date should be atleast 10 days (excluding the request date and the next SIP instalment date). Pause facility shall get activated from immediate next eligible instalment from the date of receipt of SIP Pause request. Pause facility shall not be available for SIP registered through PDC or Standing Instruction mode.
You may like to read here why continue with SIPs even in high markets
By investing fixed amounts every month through SIPs, investors get rupee cost averaging of purchase. In the long term fixed SIPs can generate good returns for investors. At the same time, there are many investment bloggers who have suggested that variable SIPs based on market movements / valuations can give superior returns or lower the risk. Variable SIPs based on market movements are quite difficult to implement in practice by average investors. Reliance Smart Step offers a convenient solution to investors who want to benefit from market movements, either to lower the risk or get superior returns, depending on their risk appetites.
Reliance Smart Step is a variant of the plain vanilla Systematic Transfer Plan (STP) – unlike a plain vanilla STP where you transfer fixed amounts from liquid or debt mutual fund schemes to equity schemes, in Reliance Smart Step you will transfer variable amounts to the equity scheme depending on market movements. Many investors associate STP with lump sum investments, but in Reliance Smart Step, you will invest in a liquid or debt mutual fund scheme either in lump sum or through SIP. This scheme is the transferor scheme. You need to select a transferee scheme, an equity fund.
Once you have identified the transferor and transferee schemes, the next step is to select one of the 5 STP options (the figures indicate how much you want to invest in equity every month in three scenarios low / medium / high for each plan):-
Source: Reliance Mutual Fund. In Plan E, X is any amount you choose
The 5 plans cover a wide range of risk / asset allocation preferences depending upon how much you chose to invest through SIPs. Depending on how much the market moves up or down, on the 10th of every month, Reliance Mutual Fund, based on a scientific model, will decide how much to transfer (low, medium or high amount) from your Transferor scheme to your Transferee scheme as per selected plan. There are multiple benefits of Reliance Smart Step. You can select a plan based on your investment plan and risk appetite. You do not need to decide on market timing yourself; you can rely on the market expertise of Reliance Mutual Funds. At the very least, compared to a fixed SIP, you will reduce the risk and increase liquidity, because a portion of your investment will be in liquid or debt funds. You can also get superior returns compared to fixed SIPs based on your risk appetite.
Reliance SIP Insure provides life insurance cover of up to Rs 21 Lakhs to investors at no extra cost. Some investors and financial advisors have the misconception that, Reliance SIP Insure is like Unit Linked Insurance Plans (ULIPs). Please note that, ULIPs and Reliance SIP Insure are very different products. In ULIPs a portion of your premium is used to provide you life cover and only the balance amount, after deducting various expenses, is invested in scheme units. In Reliance SIP Insure, your entire SIP amount is invested in units of the mutual fund scheme chosen by you. In ULIP, the nominees of the insured gets the sum assured in the event of an unfortunate death of the insured. In the case of Reliance SIP insure, the insurance cover will take care of the unpaid instalments, in the event of the unfortunate demise of an investor during the tenure of the SIP.
Some investors think that, while there is no explicit cost of life insurance cover, the cost is passed on to the investor through higher expense ratios. You should again clarify that the cost of life cover is free of cost to the investor. The investors in the SIP Insure plan get life insurance cover through Group Term Insurance Scheme and the cost of the insurance premia is borne by Reliance Asset Management Company. Investors should also note that, the life insurance benefit is not available to all Reliance Mutual Fund investors – only investors in select schemes are eligible for SIP Insure. These schemes include the flagship and some of the most popular funds of Reliance Asset Management Companies. The schemes eligible for SIP Insure are, Reliance Growth Fund, Reliance Vision Fund, Reliance Tax Saver (ELSS) Fund and Reliance Retirement Fund (Wealth Creation and Income Generation Plans).
The Life Insurance Cover under ‘Reliance SIP Insure’ facility will be as per the following clause;
Reliance SIP Insure feature, will help the family / nominees of the insured achieve their financial goals, without having to make any further investments in the event of an untimely death of the investor. Individuals with minimum age of 18 years and above and less than 51 years at the time of investment can opt for this plan.
In this blog post, we saw how mutual fund innovations, especially those brought about by Reliance Mutual Fund, have made financial planning sustainable and effective in various dynamic and unforeseen scenarios. We devoted a large part of this post to various investor friendly features offered to Reliance Mutual Fund SIP investors. We think that these SIP features add value, depending on the investors needs, without any additional cost. Investors should consult with their financial advisors, if they can benefit from these value-added SIP plan features offered by Reliance Mutual Fund.
Mutual Fund Investments are subject to market risk, read all scheme related documents carefully.
Dwaipayan leads content production and mutual fund research in Advisorkhoj.com. He is actively involved in business development strategy, driving revenue growth and profitability, delivering superior customer satisfaction and talent development in Advisorkhoj. An alumnus of IIM Ahmedabad, Dwaipayan is a Finance and Consulting professional, with nearly 17 years of management and consulting experience in financial services domain across several geographies. In his previous corporate role, Dwaipayan was the Chief Financial Officer of American Express Global Business Services in India. He also co-founded a boutique consulting start-up to advice companies on business restructuring initiatives like private equity funding, mergers & acquisitions, divestitures, outsourcing and organizational restructuring. Dwaipayan has a strong track record of driving superior financial performance and developing talent in the organizations he has been involved with. He can be followed on his Twitter handle @DBadvisorkhoj.
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